To: A few friends and many Devious Defenders of the Status Quo (DDotSQ) on several mail lists in the English speaking countries. Hi Folks, While we wait for the DDotSQ to decide what to do about the Global Model at URL <http://www.freespeech.org/darves/bert.html>, I would like to re-visit a few features of the model which have been called into question by changes in the received economic wisdom since the last update of the model in 1994. Figure1: The relative performance of national economies shown in Figure 1 is based on national GNP/capita data converted to $U.S./year at current (market) exchange rates. But beginning around 1994, GNP/capita data converted at Purchasing Power Parity became the preferred method of showing the relative performance of national economies. In the tabulation below the 1949 to 1994 trends in relative performance of nations is shown, based on conversion at current exchange rates, followed by the quite different picture in 1998 based on conversion at Purchasing Power Parity. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ TRENDS OF THE RECENT 50 YEARS shown as % of Swiss GNP/capita Sources of data for years 1949, 1961, 1994, and 1998: (1949 & 1961 at current exchange rates: Page: 12 of ECONOMIC DEVELOPMENT, 2nd Edition, 1965, by Charles P. Kindleberger, M.I.T.) (1994 at current exchange rates: World Bank, 1996 ATLAS) (1994 at Purchasing Power Parity (PPP): World Bank, 1996 ATLAS ) (1998 at PPP: URL <http://www.odci.gov/cia/publications/hies97/index.htm>) ------------------------------------------------------------------------------ ----------------------------------- <<<< current exchange rates >>>>> < Purchasing Power Parity > 1949 1961 1994 ^ 1994 1998 Swiss 849 $/yr. 1,463 $/yr. 37,180 $/yr. ^ 24,390$/yr. 23,800$/yr. 100% 100% 100% ^ 100% 100% Japan 100 $/yr. 402 $/yr. 34,630 $/yr. ^ 21,350$/yr. 24,500$/yr. 12% 27% 93% ^ 88% 104% U.S. 1,453 $/yr. 2,308 $/yr. 25,860$/yr. ^ 25,860$/yr. 30,200$/yr. 171% 158% 70% ^ 106% 127% U.K. 773 $/yr. 1,149 $/yr. 18,410 $/yr. ^ 18,170$/yr. 21,200$/yr. 91% 79% 50% ^ 75% 89% <<<< current exchange rates >>>>> ^ < Purchasing Power Parity > 1949 1961 1994 1994 1998 Notice that the U.S. GNP/capita changed from 171% of Swiss in 1949 to 70% of Swiss in 1994, and then back up to 127% of Swiss in 1998 due to the change of method in 1994 from converting national data at market rates to converting national data at PPP rates to $U.S./year. Did any of you realize a benefit from the 70% to 127% improvement of U.S. GNP/capita over the last four years? The lesson to be learned here is that national GNP/capita converted to one currency for comparison of relative national performance is only one of many measures of national performance and is still one step or more removed from realistically measuring the general well-being of each nation's population. Does this insight make Figure 1 useless for our discussion? Not really. The key note of Figure 1 is that the available measures of national performance such as GDP/capita (either way), capital investment (% of GNP), and human investment (% of GNP) can be plotted against the best available measure of total tax rate (Government as % of GNP) to show national performance over the whole continuum of social structure, from Democratic Capitalism at 30% of GNP to Communism at 75% of GNP. In 1978, three respectable establishment authors Theodore Geiger, Neil J. McMullen, and Harold van B. Cleveland proposed this particular presentation of national performance in a National Planning Association (NPA) Report #160 entitled, WELFARE AND EFFICIENCY (Their Interactions in Western Europe and Implications for International Relations). Unfortunately, no funding from industry, government, or non-profit foundations was available to develop this particular topic as I have developed it. As we all know, only fools, retired people, and independently wealthy people (Steve Forbes on Flat Taxes) are free to develop topics which the usury maximizing establishment will not fund. Figure 2-3: The 1994 up date of Figure 2-3 plots the U.S. money supply measures M1 and M3 together with the Dow Jones Industrial Average as shown in the following tabulation. Corresponding data for 1998, only four years after the 1994 update, are from the 99-02-02 Wall Street Journal: U.S.A. 1994 1998 Four year change M1 $1,144.4 billion $1,090.2 billion down 4.7% M3 $4,487.5 billion $6,033.0 billion up 36.9% DJIA 3700 9306 up 252.0% GNP $6,737.4 b/year $7,678.5 b/year up 114.0% (Net Sales calculated as GNP/40%, per Wassily Leontief's INPUT-OUTPUT tables) Net Sales $16,843.5 b/year $19,196.3 b/year up 114.0% obviously Notice that the U.S. annual GNP and Net sales have more than doubled over the last four years while using 4.7% less working capital (M1). If that improvement continues over the next four years, we might even be able to revert to the Gold Standard, without the nasty little "business cycles." The burden of proof is on those people who claim that government could operate the banking system more efficiently than the private sector does, from the Federal Reserve Board down to your local neighborhood branch bank, credit union, and interest-free Local Employment Trading System (LETS). Might we not suppose, after more than a century of demonizing the financial system and the people who run it, that we are being conned by the DDotSQ just to maximize their market for usury, which is quite independent of the amount of issued money (M1) in circulation. It is easier to address the basic facts, expressed in current numbers, as illustrated in the Global Model, than to rehash what various prominent establishment spokesmen such as C. H. Douglas, J. M. Keynes, and Abba Lerner said about economics prior to the 1980s and 1990s, when Japan and western Europe reverted to the U.S.- U.K. maximum usury policy. IMHO, the last prominent establishment spokesmen to address the money question with a "Full Deck," was Henry Carter Adams, in 1887. The others, including most frequent posters on today's e-mail lists, were/are either technically incompetent or card carrying members of the DDotSQ! There is no other explanation for the present condition of the queen of the social sciences, ECONOMICS, in the English speaking nations. Figure 6: A robust macro model of a complicated process, that is to say, the complicated process of a life support system for any human population, must be a little more complicated than 4 or 5 circles connected by dotted lines, arrows, and words. But it must also be simple enough to integrate the real life experiences of each person engaged in the dialog about the technical validity of such a macro model. Figure 6 at URL <http://www.freespeech.org/darves/bert.html> has integrated the real life experiences of this writer in such matters as: competitive bidding on government contracts, The General Electric Company's 1940s decentralization program which continues to date, Wassily Leontief's 1966 Input/Output tables showing trade between government, households, and businesses within a national economy, and Pope John Paul's definition of the risk to the world of reverting to "English Capitalism" as promulgated on page 82 of his 1991 encyclical letter, ON THE HUNDREDTH ANNIVERSARY OF RERUM NOVARUM. If the truth be known, without the freedom to read the Catholic and Jewish literature on the relation of religion to economics, this Protestant could not have put Figure 6 on paper, and even so, it took a few years to get it right. Your obligation is either to produce a better macro model, or, to accept this one as the best conceptual framework available for a dialog on improving our social policy. But a valid micro model is also needed to visualize the century old root-cause of our social pathology, and particularly so because so many of us make our living by catering to the various symptoms of our social pathology, just as Bernard DE Mandeville said in his 1705 FABLE OF THE BEES, Private Vices, Public Benefits. Figure 7-9: Comment on Figures 7-9 is omitted here because that page of three charts includes biblical references. I have been advised by the DDotSQ that my pictures would receive a wider response it biblical references were deleted. Such references seem to evoke fear and loathing from Stiff-Necked Fundamentalists at one end of the social spectrum, from Vociferous Jewish Atheists at the other end, and from many of the uncommitted in between. Principles are a bother sometimes, but they are useful for the long run.. Figure 8 The U.S. Systemic Defect of Omission: Here in Figure 8 is a micro model that is robust enough to illustrates how and why a century of miseducation in economics, using a "short deck," was bound to bring us, and the rest of the world, to our present condition. It is not that we were taught a false theory of economics. Everything we learned was true, as far as it went. But it was not the whole truth! As the macro model, Figure 6, shows so clearly, the systemic defect of omission (a net deficiency of purchasing power can affect either or both of the markets at zero and 180 degrees which are present in every business enterprise; from a family farm, a community, an industry, a national economy, to the global economy. But the prominent people who solved the problem, of insufficient purchasing power in the national and world markets at zero degrees on Figure 6, for their corporate producers, could not see their advantage in letting the public solve the problem for its human producers (the employees) in the labor market at 180 degrees on Figure 6. It is surely a work of art to keep a public ignorant for a century of the adverse consequences of imposing fixed expenses on a population of productive assets which vary in age and in their capacity to contribute value-added to the wealth of the commonwealth. There were only a few employers with the vision of the founders of the Ford Motor Company, Lincoln Welders, and Filine's of Boston, who acknowledged that their employees were of the same species as themselves and arranged their corporate financial structure to reduce the effects of fixed expenses on the price mechanism of the labor market, just as they had already done to reduce the effects of fixed expenses on the price mechanism of the world market. Of course, corporations which regard their employees as expendable do enjoy a certain competitive advantage over those who would make their employees a part of the corporation, so the solution to the "net deficiency" of purchasing power in the households, at 270 degrees on Figure 6, must be provided by legislation proposed by informed representatives of the public, that is, by government authority. From this, a rule of thumb for the three essential functions of minimum government would read: First, those things needed to stabilize local labor market and the world market. Second, those things which need to be done equally for each citizen. Third, those things which need to be done only once for the commonwealth. Everything else in a well developed society will be nicely done by the private sector. Now all of this is obvious from a brief inspection of Figure 8, which is a cross-section of the flow of value-added (uVA/year) by, and the flow of income received ($/year) by, each member of the national workforce shown at 270 degrees on the macro model Figure 6. To those public dependents shown on the left of Figure 8, which are supported by the public revenue but whose product does not compete in the world market for the after-tax purchasing power of the workforce, we should add the entire defense establishment, both the military and its private sector suppliers. With the whole GNP flowing through Figure 8, the three largest items of expense in the national economy, each amounting to about 5% of GNP, are the national defense budget, the public education budget (both on the left side), and the family budget for support of dependent children on the right side of Figure 8 (the elderly on the left side of Figure 6 have their social-security and medicaid payments, thank the Lord and Franklin Delano Roosevelt in 1935, and Dole/Greenspan/& company in 1986). Now, anyone who owns a computer and a modem and posts his opinions on the WWW and claims that he/she cannot see in Figure 8 the root cause of the perennial net deficiency of purchasing power in an economy with a well developed division of labor and a circulating medium of exchange (M1 in the U.S.) is either a functional illiterate, or, a true believing card carrying member of the DDotSQ. Democracy and economic development cannot be sustained in any nation after these two types become a cultivated majority. So more money for public education will not solve the social disorders caused by leaving 5% of GNP in the private household budgets, when it should be in the public government budget. Once again, my few friends, nothing I might say at this point can more clearly convey the spirit with which I submit this Global Model, which is indeed the keystone of an economic philosophy, than the words of Rene Descartes in his 1641 letter to The Faculty Of Theology at Paris. He wrote, in part, concerning his "Meditationes de Prima Philosophia:" "It is different in philosophy, where it is believed that there is nothing about which it is not possible to argue on either side. Thus few people engage in the search for truth, and many, who wish to acquire a reputation as clever thinkers, bend all their efforts to arrogant opposition to the most obvious truths. ----- That is why, Gentlemen, since my arguments belong to philosophy, however strong they may be, I do not suppose that they will have any effect unless you take them under your protection." My thanks to Charles Michael, John Courtneidge, William B. Ryan, John C. Turmel, Diarmid Weir, Helen Marsh, Jeffrey Gates, Mr. Canova, Douglas P. Wilson, Bob McDaniel, and others for keeping the dialog alive while I was trying to think of something new to say about the only technically valid Global Model on the internet. LET'S hear from the lurkers, innocents, and frequent posters on the several e-mail lists. Kind regards, WesBurt
